DOING BUSINESS IN POLAND
I. GENERALLY SPEAKING ABOUT POLAND
Poland is situated in the heart of Central Europe and regarding the area is the ninth-largest country on the continent and the sixty-eight in the World. Poland has almost 39 million inhabitants and is on the 33 position regarding population in the world. Poland is one of the youngest countries on the continent. – 35 % of Poles are under 25 years of age.
Polish is the official language. The official currency is the zloty (PLN) which is divided into 100 groszy. The PLN is subject to the floating exchange rate related to foreign currencies. Amounts in cash up to EUR 10,000 may be taken out of the country without specific permits, whilst amounts exceeding EUR 10,000 may be transferred out of the country providing appropriate documentation, such as contracts, invoices.
Poland went a difficult transformation from the Soviet-style economy to a market economy. On 1 January 1990 the new Solidarity-led government implemented a shock therapy by slashing subsidies, decontrolling prices, tightening the money supply, stabilizing the foreign exchange rate, lowering import barriers, and restraining state sector wages. Parliamentary democracy was established in Poland in 1991. This concluded a process set in motion by the "round-table" talks between the Communist government then in power and representatives of the Opposition (6 February-5 April 1989). As a result of these essential changes in the socio-political system the name of the state reverted to its historical antecedent: the Republic of Poland.
Nowadays Poland is a parliamentary democracy headed by a President elected in general elections. The President’s term of office is 5 years. The President’s role, the election procedures, the function and the responsibilities of the Parliament and the Government are determined by the provisions of the National Constitution, written in 1997.
The bicameral Parliament, composed of the lower house (Sejm) and the upper house (Senate) is elected every four years in general elections and is responsible for creating laws. In this respect, it is the Sejm that has most of the power; the Senate may only suggest amendments to legislation passed by the Sejm.
The Prime Minister, proposed by the President to form a Government and win a vote of confidence in the Sejm, chairs the Council of Ministers and is Poland’s Head of the Government. Governmental institutions consist of the Prime Minister, the Government’s Presidium, and the Office of the Council of Ministers.
Poland is divided into 16 provinces. Each of the provinces (voivodships - województwa) is headed by voivode appointed by the central Government. Provincies are further divided into 308 counties (powiaty) and 2,489 communes (gminy). Local administration is elected in general local elections, is responsible for managing local affairs, including the allocation of public founds.
Poland is a member of many World organizations, for example:
- European Union (EU),
- United Nations (UN),
- International Monetary Found (IMF/MFW),
- United Nations Educational, Scientific and Cultural Organisation (UNESCO),
- United Nations International Children’s Emergency Fund (UNICEF),
- World Health Organisation (WHO),
- World Trade Organisation (WTO),
- Organisation of Economic Cooperation and Development (OECD),
- North Atlantic Treaty Organisation (NATO).
II. LEGAL FORMS OF DOING BUSINESS IN POLAND
On 9 October 2000 the President of the Republic of Poland signed a new Commercial Companies Code, which was passed by the Parliament on 15 September 2000. Due to its fundamental character, resulting first of all from a wide range of regulated problems, the proper implementation of the Code is strictly connected with the implementation of the two other Acts passed by the Parliament:
- Business Activity Law of 2 July 2004;
- National Court Register Act of 20 August 1997.
The Commercial Companies Code begins with general provisions which determine the object of the regulation. The new law regulates the formation, structure, operation, dissolution, merging, division, as well as transformation of commercial companies. The Code introduced a new legal form of “a company in organization”. This Code determines that a company in organization is an imperfect legal person, the third category of legal entities apart from natural and legal person.
Polish regulations allow the following legal forms of businesses:
- civil partnership,
- representative office,
- branch office,
- registered partnership,
- professional partnership,
- limited partnership,
- limited liability company,
- joint stock company.
COMPANIES WITH FOREIGN PARTICIPATION
In accordance with Art. 13 of the Business Activity Law the foreigners form EU and EFTA enjoy the same rights as the Polish citizens and companies by taking up and conducting business activities on the territory of the Republic of Poland.
The citizens of foreign states who are not from EU and EFTA and who among others have received a permit to settle on the territory of the Republic of Poland, a permit to stay as a long-term resident of EC, a status of refugee granted in the Republic of Poland, a consent for tolerated stay or enjoy temporary protection within the territory of the Republic of Poland, shall enjoy the same rights as the Polish citizens by establishing and conducting business activities on the territory of the Republic of Poland.
Other foreigners may conduct business in Poland in the form of companies regulated by commercial law like: limited partnership, limited joint-stock partnership, limited liability company, joint stock company.
PROCEDURES FOR ESTABLISHING A COMPANY:
1. Signing of a company deed or statute;
2. Entry in the National Court Register;
3. Issuance of a statistical number (REGON);
4. Tax office notification;
5. Opening a bank account;
6. VAT registration.
Original documents foreign languages should be confirmed by the appropriate Polish embassy or consulate as having being prepared in accordance with the law prevailing in the country of the parent entity.
CIVIL PARTNERSHIP
The basis of a civil partnership is regulated in the Civil Code of 23 April 1964 in Art. 860 and subsequent. By a deed of partnership the partners shall undertake to promote the attainment of a common economic objective by acting in a specific manner and, in particular, by making contributions. The most important is that the deed of partnership shall be made in writing. And the partners shall bear joint and several liabilities for the partnership’s obligations. International agreements on reciprocity should be in place. Otherwise, a foreign investor is required to present a certificate issued by the competent Polish representation abroad, stating that, in accordance with the principle of reciprocity, Polish entrepreneurs are permitted to conduct business activity in the country in which the investor has permanent residency or a registered office. The partners pay Personal Income Tax (PIT).
REPRESENTATIVE OFFICE
Representative offices may only carry out activities relating to advertising and promotion of the foreign person. In order to establish a representative office an entry is required into the register of representative offices kept by a relevant ministry. In addition, a representative office is not a self-balancing unit. Any division of property by the entrepreneur, if effected, is of purely technical and organizational nature.
A representative office is obliged to:
1. use the name of the foreign entrepreneur in the language of the country in which his or her registered office is located, together with a Polish translation of the name of the economic entrepreneur's legal form and the phrase "przedstawicielstwo w Polsce",
2. keep separate books in accordance with the provisions of laws on accountancy,
3. notify the Minister of Economy of any factual and legal changes concerning data included in the application and in the statement of the foreign entrepreneur concerning the extent to which the share capital has been financed by contributions, as well as of the commencement and termination of any proceedings conducted to wind-up the business of the foreign entrepreneur and of the forfeiture of his right to conduct business activity or possess property, no later than 14 days from the time upon which such events take place.
BRANCH OFFICE
Branch offices are able to undertake a variety of economic and trading activities provided that:
- the activities of the branch correspond to that of the parent entity,
- the branch is registered under the same name as the parent entity together with a Polish translation of the entity's legal form and the phrase "oddział w Polsce" added,
- separate accounting records in the Polish language and in accordance with the Polish accounting regulations are maintained, and if liquidation has been commenced or if the foreign entity has lost its right to carry out business activity or to dispose of its property, the fact is notified to the relevant Polish authorities.
Up to the time the National Court Register is set up, branch offices are subject to registration in the Register of Entrepreneurs kept by the district courts. In principle, a branch may be established on the condition of reciprocity between Poland and the country of origin of the foreign entity establishing the branch office.
REGISTERED PARTNERSHIP
In accordance with the definition a registered partnership shall be a partnership which conducts an enterprise under its own name and is not any other commercial company. Such a partnership does not possess a legal personality, thought it may act on in its own behalf, and has its own assets and debts. Every partner shall be liable for obligations of the partnership without limits, with all his assets jointly and severally with the remaining partners. In order to be effective, a deed of partnership must be executed in writing, whereupon the partnership should be entered into the National Court Register. Upon entry into the register the civil partnership shall become a registered partnership if its net revenue from the sale of goods or provision of services in each of two subsequent financial years is he equivalent in the Polish currency of at least EUR 800,000 (an enterprise of considerable size).
PROFESSIONAL PARTNERSHIP
The Code introduces two categories of partnerships unknown under the Commercial Code of 1934. The first one is a professional partnership designed for individuals performing regulated professions and rendering their services as a partnership by running an enterprise under its own business name. This partnership has no legal personality. Professional partnership is available for investors wishing to conduct economic activities defined as “free professions”. Partners in this partnership may be persons authorized to practice the following professions: attorney, pharmacist, architect, expert, auditor, insurance broker, tax consultant, accountant, physician, dental surgeon, veterinary surgeon, notary, nurse, midwife, legal counsel, patent agent, property valuer and sworn translator. The deed of this partnership shall be made in writing. A partner shall not bear liability for partnership’s obligations which arise in relation to the practicing of liberal profession by the remaining partners within the partnerships, as well as for partnership’s obligations resulting from the actions or default of persons employed by the partnership, such persons being subordinate to another person. The partnership should be entered into the National Court Register. The company is created upon its entry in the register. International agreements on reciprocity should be in place. Otherwise, a foreign investor is required to present a certificate issued by the competent Polish representation abroad, stating that, in accordance with the principle of reciprocity, Polish entrepreneurs are permitted to conduct business activity in the country in which the investor has permanent residency or a registered office.
LIMITED PARTNERSHIP
A limited partnership is a company, in which at least one partner is a general partner and has an unlimited liability towards the partnership’s creditors (unlimited partner) and the liability of at least one other partner is limited (limited partner). The limited partner is responsible for the company’s liabilities only to the value of his capital contribution. The deed of this company shall be made in a notary form. The limited partnership comes into existing after entry into the National Court Register.
LIMITED JOIN-STOCK PARTNERSHIP
A limited joint-stock partnership shall be a partnership in which at least one partner (general partner) has unlimited liability towards the partnership’s creditors and at least one partner is a shareholder. The initial capital of this company shall amount to at least PLN 50.000. A supervisory body may be appointed in this partnership. The supervisory board shall exercise permanent supervision over the activity of the partnership in all areas of such activity. This partnership does not possess a legal personality, though it is in a way a hybrid of a joint-stock company and limited partnership (limited joint-stock partnership).
LIMITED LIABILITY COMPANY
It is a very popular way of conducting business in Poland among medium and large companies and foreigners. This form of activity is usually established for the purpose of operating business on a large scale. The company deed (articles of association) must be prepared in the form of a notarial deed, or is otherwise null and void. The founders can be one or more legal or natural persons. The initial capital of the company must be not less than PLN 5.000, and the initial value of one share must be not less than PLN 50. The Company is liable for its debts and obligations with its whole property. There are no special requirements for foreign investors.
A limited liability company may be formed by one or more persons for any legitimate purpose. Founders may not be another limited liability company as the single promoter. The shareholders are not liable for the obligations of the company. A limited liability company is a legal entity. Limited liability companies having their seats abroad may establish branches or representations on the territory of the Republic of Poland.
Establishment of a limited liability company:
1. Signing Articles of Association in the notary’s office. The cost of signing the articles is a notary’s fee and a stamp duty. The amount of both charges depends on the amount of the company’s share capital.
2. The management board shall submit the Articles of Association to the National Court Register. Registration takes place at the district court having jurisdiction over the principal place of business of the company being formed. Upon being registered the company acquires legal personality. The fixed charge amounts to PLN 1 500. The management board apply at the same office in the National Court Register:
- for the company’s statistical number REGON assigned by a Provincial Statistical Office,
- for the company’s registration with the Statistical Insurance Institution (ZUS) as an employer,
- for the company’s registration with the Tax Office in respect of income tax and VAT (taxpayer number - NIP).
Registrations Court sends the notification to the right departments. It does not decide about their correctness or completeness.
JOINT STOCK COMPANY
A joint stock company (S.A.) differs from a limited liability company (apart from the required minimum of share capital and some other features) in that there is a possibility of using bearer shares. This company may be formed by one or more persons. A sole-shareholder limited liability company may not form a joint-stock company as the single promoter. The statute of a join-stock company shall be executed in the form of a notarial deed. The minimum capital is PLN 100 000 and is divided into equal nominal shares of at least PLN 0,1. In a join-stock company a supervisory board is obligatory and supervises the activity of the company on an on-going basis. The supervisory board is composed of at least three members appointed by the General Meeting. A member of the current management board, the company’s liquidator or some of the company’s senior employees (e.g. chief accountant, legal counsel, etc.) may be not be members of either of the company’s supervisory bodies. The General Meeting (in a join-stock company) or the Meeting of Shareholders (in a limited liability company) is a decision-making body in matters of major significance to the company. Its meeting may be ordinary or extraordinary. An ordinary meeting should take place once a year. It should be held during the first six months of the financial year.
THE REGISTER OF ENTREPRENEURS
According to the Law of the National Court Register of 7 October 1997, as of 1 January 2001 companies, commercial partnerships must be registered in the Register of Entrepreneurs, which is the part of the National Court Register managed by the district courts.
The Register of Entrepreneurs is open to the public. It consists of six parts, including as follows:
- part 1 – the company’s legal form, REGON number, its previous number in a commercial register or register of business, place of conducting business activity, name and address of the registered office of the company, indication of the shareholders of commercial partnerships, any branches of the company (and whether it was covered by contributions in cash or in kind), indication of shareholders of limited liability companies with the number of shares held by each, shareholders of joint-stock companies holding registered shares, the company’s statutes and any subsequent amendments;
- part 2 – the representatives, the supervisory bodies and any holders of a commercial power attorney of the company,
- part 3 – scope of activity, information on submission of the annual financial statements of the company, auditor’s reports, resolutions on the adoption of the financial report and distribution of profits and losses,
- part 4 – information of outstanding tax and other payments and social security contributions covered by enforcement if they were not paid within thirty days of the initiation of enforcement proceedings, creditors of the company, information of the regarding motions on initiation or initiation of agreement proceedings or declaration of bankruptcy, motions of these proceedings or on the annulment of the arrangement,
- part 5 – information of appointment or dismissing of custodians for the company,
- part 6 – information of the initiation and termination of liquidation proceedings, dissolution and annulment of the company, mergers and transformations of the company, the number and date of the notification from the Competition and Customer Protection Office on the lack of reservations concerning and intended merger.
An individual, who conduct economic activity, is registered in a register of business activity kept by the communes. The registration books, in which companies in organization are also listed, are kept by the administrator of a group of villages, the mayor or the town’s president.
The foreign entrepreneur must meet the following formal requirements in order to obtain an entry in the Register of Entrepreneurs:
- disclose the first name, surname and address in Poland of a person authorized to represent the foreign entrepreneur in the branch office,
- attach sample signature, certified by a notary, of a person authorized to represent the foreign entrepreneur in the branch office,
- attach a certificate issued by the appropriate Polish representation abroad, attesting that in accordance with the principle of reciprocity, Polish entrepreneurs are permitted to operate in the country in which the foreigner has permanent residency or a registered office on the same terms and conditions as are provided for entrepreneurs having permanent residency or a registered office in that country; such certificate is not required if an agreement providing for the principle of reciprocity is in place between Poland and the relevant country or if international agreements ratified by Poland provide otherwise,
- if he operates pursuant to a founding deed, articles of association or a statute - place such instrument in the registration files of a branch office together with a sworn translation into Polish; if the foreign entrepreneur sets up more than one branch office in Poland, such instrument may be placed in the registration files of only one branch office, provided that a reference is made in the registration files of other branch offices together with the identification of the Court in which such files are kept and the number of the Registry division,
- if he exists or operates pursuant to an entry in the Register - place an excerpt of such Register together with its sworn translation into Polish in the registration files of a branch office,
- if he operates in the form of a company not governed by the laws of any of the EU Member States - provide a statement in which he or she indicates to what extent the share capital has been financed by contributions, provided that the laws of the country in the territory of which the company has a registered office allow for a partial contribution towards the share capital.
REGISTER OF BUSINESS ACTIVITY
1. Legal form:
- individuals and partners in general partnerships,
2. Registration authority:
- municipality of town’s,
3. Document confirming the entry:
- certificate of registration in the register of business activity,
4. Cost of registration:
- PLN 100,
5. Cost of amending in the register of business activity:
- PLN 50.
Register of entrepreneurs
1. Legal form:
- other legal forms, registered partnership, professional partnership, limited partnership, limited joint-stock partnership, limited liability company, joint stock company, branch office, representative office, foundations, etc.
2. Registration authority:
- district court,
3. Document confirming the entry:
- registry court decision on the registration,
4. Cost of registration:
- PLN 1 000 + PLN 500 fee for a mandatory announcement in Court and Economic Monitor (Monitor Sądowy i Gospodarczy),
5. Cost of amending the registration data:
- PLN 400 + PLN 250 fee for mandatory announcement in Court and Economic Monitor (Monitor Sądowy i Gospodarczy).
III. TAXES IN POLAND
All taxes in Poland are approved by the Parliament. In accordance with Art. 217 of the Constitution of the Republic of Poland the imposition of taxes, as well as other public levies, the specification of those subject to tax and the rates of taxation, as well as the principles for granting tax relief and remission, along with categories of taxpayers exempt from taxation, shall be by means of a statute.
The Polish taxation system has been undergoing substantial changes in the recent years aimed at creating a more transparent system and at conformance to taxation standards existing in market economy countries.
Generally speaking taxes may be divided into:
DIRECT TAXES
- corporate income tax,
- personal income tax,
- inheritance and gifts tax,
- civil law transactions tax,
- agriculture and forestry tax,
- real estate tax,
- dog tax.
INDIRECT TAXES
- VAT- tax on goods and services,
- game tax.
Several authorities, the hierarchy of which is as follows, administer the Polish taxation system:
- The Minister of Finance,
- Tax Chambers, which rule on appeals against the pronouncements of tax offices,
- Tax Offices, which are tax tribunals authorized to issue administrative decisions with respect to taxpayers located within the area of their jurisdiction. Taxes are paid to the local tax offices.
If the taxpayer disagrees with the verdict of the Tax Chamber, he or she has the right to lodge an appeal with the Administrative Court.
As from 1 January 2004 the structure of Polish Administrative Courts changed and the new Procedural Law on acting before Administrative Courts came into force. The major change includes the introduction of a two stage appeal court process in Polish Administrative Courts: the Administrative Voivodship Courts and the Supreme Administrative Court. The Supreme Administrative Court will deal mainly with complaints from Administrative Voivodship Courts.
The taxpayer can ask the Minister of Finance for giving him an answer to a tax problem. The Minister of Finance is obliged to give him an answer within 3-month period. If the tax payer solves the problem using the interpretation of the Minister of Finance he hasn’t any consequences even if the interpretation of Minister of Finance was wrong.
ACCOUNTING REQUIREMENTS
Taxpayers conducting business activities are generally required to maintain accounting records to serve as the basis for the calculation of tax. Businesses are obliged by law to calculate taxes due during the financial year, to make prepayments and to fulfill certain other duties. In accordance with the accounting Act dated 29th September 1994 entities, which have seat or management board in Poland, are required to maintain accounting records according to this Act.
The obligatory statutory audit is necessary for the companies which met two of the following three requirements in the previous year:
- 50 employees in the year average;
- 5 000 000.00 EUR turnover;
- 2 500 000.00 EUR balance sheet sum.
REPORTING AND PAYMENT DATES
The tax year in Poland is the calendar year consists of twelve consecutive months ending on December 31. However, a limited liability company or a stock company is free to change its tax year by choosing another twelve-month period and notifying the competent tax office.
Where the taxpayer's tax year is different from the calendar year, the start of the year's tax rate will be applicable during the entire tax year.
- An Individual - An individual whose income is from a salary only is not obliged to file an annual return if applies to the employer for issuing of it’s personal tax declaration (PIT40).
The employer who deducts income tax from the employee transfers the tax to the tax authorities each month.
An individual who is self-employed is obliged to make 11 monthly advance payments.
Each advance must be made by the 20th day of the month for the previous month (in December an advance is paid for both November and December).
The date for filing the annual return is April 30.
- A Company - Payment of advances on tax is in the case of a limited company similar to that of the individual.
The company is obliged to file an estimated return (yearly corporate income tax declaration) to the tax authorities by March 31, and to pay the difference in the tax.
The monthly or quarterly VAT return must be filed to the tax office by the 25th day of each month for the previous month or by the 25th day of month after end of the quarter for the previous quarter.
VALUE ADDED TAX
The “tax on goods and services” (the Polish name for value added tax - VAT) is charged on sales and supplies of goods and services and on the import and export of goods and services. This tax was introduced in July 1993 and replaced a turnover tax. Since 1st of May 2004 there is new VAT-Law which is in accordance with Sixth EU-Directive no. 77/38 of 17 May 1977 (currently EU-Directive no. 2006/112/WE of 28 November 2006), concerning harmonization of the Member States’ regulations in respect of the turnover tax – a common system of the value added tax.
Rates of VAT in Poland are:
- standard rate - 23%, (applicable to the majority of goods and services),
- reduced rates – 8% and 5%,
- preferential rate - 0%.
8% rate is applied in particular to some goods connected with health care, groceries, building materials and services connected with housing construction, hotel services and transport of persons.
5% rate primarily covers the sale of certain unprocessed or semi-processed produce of agriculture, forestry, hunting and fishery.
0% preferential rate refers mainly to intra-community supply of goods and export of goods.
By virtue of the Act, the exemption from VAT is applicable primarily to services performed by the State Post, financial agency services, services within scope of education, health care and services in the field of public administration.
PERSONAL INCOME TAX (refers to individuals)
The tax is assessed on income of natural persons. This tax is paid both by Polish citizens and by permanent residents. Only the Polish earnings are taxable.
The income tax is progressive. In 2011 the tax is computed on the basis of the following table:
| Base of tax calculation PLN | Tax payable | |
| over | up to | |
85 528 | 85 528 | 18% less PLN 556, 02 PLN 14 839,02+ 32% over PLN 85 528 |
Tax free allowance - PLN 556,96.
There are some flat rates for certain incomes, e.g.:
- 19% on dividends,
- 19% on interest on bank investments,
- 19% on sale of real estate used for housing purposes,
- 75 % on revenue from undisclosed sources or not matching up with disclosed sources,
- 10 % on winnings in competitions, games and mutual bets, or prizes related to bonus sales.
The 19 % linear income tax for natural person was brought into effect on January 1, 2004. Economic activity means paid activity which is executed in organized and continuous manner, acting on behalf of its own and on its own or foreign, from which obtain income are not accept to another source of revenue. Possibility to choose linear tax rate depends on a number of conditions, for example:
- Taxpayer should make a statement in writing to the head office of the regional tax office choosing this method of taxation by the 20th January of the taxable year. If a taxpayer begins an economic activity in the middle of taxable year – he should make a statement till the day before a day of the beginning of the economic activity, no later than the day obtaining the first income.
- Preferential tax does not concern natural person that obtain income from serves in aid of ex- or current employer respondent activity which was made in the taxable year or in taxable year preceding the year within the confines of the proportion of the employment.
Choosing linear income taxation means automatically resignation from every deduction and allowances, including housing allowances resulting from vested interests. Vesting exemptions in connection with investments in Special Economic Zones are eliminated. The entrepreneurs continue only the right to reduce the income by the contribution for social security, and the right to reduce the tax rate by a contribution for health found.
Choosing linear income taxation means the resignation from the right to common taxation with the spouse and making use from preferences provided for single.
CORPORATE INCOME TAX
All limited liability and joint stock companies (including companies with foreign participation), also companies in organization, as well as unincorporated organizational entities with exception of unincorporated companies being resident in Poland are payers of the corporate income tax.
Corporate income tax is levied on any income, with the exception of revenues derived from forestry and agricultural activities.
All other foreign companies, i.e. non-resident companies, pay corporate income tax only on income and capital gains earned in Poland.
The corporate income tax rate amounts to 19%.
There are some flat rates for certain incomes (withholding tax), e.g.:
- 19% on dividends,
- 20% on interest, revenues from know-how, licenses, and other intangible services – paid to foreign entities.
If the shareholder of the Polish legal person is resident of an EU member country and has at least 10% of the shares during the period of at least 2 years the dividends paid to the shareholder are free of tax (withholding tax) in Poland.
Costs
The general rule is that costs incurred for the purpose of generating or making secure revenues are considered revenue-earning costs, except where otherwise stated in law. A taxpayer may treat any costs as revenue earning costs if it establishes a direct or indirect connection between the costs and the business activity it carries on, and if such costs have a direct impact on the amount of profit derived. Generally, revenue earning costs are deductible only in the tax year to which they pertain, i.e. incurred also in the years preceding a given tax year but pertaining to the revenues of the tax year.
Non-deductible expenses include among others:
- depreciation of motor cars for the part of a car's value that exceeds the equivalent of EUR 20 000;
- motor car insurance premiums for the part of the car's value that exceeds EUR 20 000;
- interests accrued, but not yet paid, on liabilities;
- fines and fiscal penalties;
- costs of representation (i.e. official entertainment)
Depreciation
Assets which have a useful life of more than one year and an initial value of over PLN 3,500 are deemed capital items and therefore subject to depreciation. The expenditures on the acquisition on items whose initial value is less than PLN 3,500 constitute revenue-earning costs in the month when they are given for use.
Depreciation of fixed and intangible assets and of legal rights is deductible for tax purposes. However, tax depreciation is usually different from book depreciation. Tax depreciation rates are specified in the tax law and cannot be exceeded. Both straight line and reducing balance depreciation are allowed, though the latter applies only to machinery and equipment, except for passenger cars. Under certain circumstances it is possible to apply accelerated tax depreciation. Depreciation rates for fixed assets are constant.
Tangible assets eligible for depreciation include the following items, provided they are owned or co-owned by the taxpayer, have been acquired or produced by the taxpayer by own means, and are complete and fit for use on the day when they are accepted for use:
- constructions, buildings and premises which constitute separate property;
- machine, devices and means of transport;
- other objects whose anticipated period of use exceeds one year, and which are used by the taxpayer for the purposes of economic activity conducted by him;
- investments in other parties' fixed assets;
- buildings and constructions built on other parties' land.
Intangibles eligible for depreciation include purchased property rights, such as perpetual usufruct rights to land, cooperative rights to business premises, copyrights, intellectual property rights, licenses, and know-how. Certain start-up costs in a joint stock company are also subject to depreciation. Land and the right to perpetual usufruct of land is not subject to depreciation.
Examples depreciation rates:
| Description of Fixed Assets | Rate Percent |
| Apartment buildings | 1.5 |
| Non-apartment buildings | 2.5 |
| Underground garages, technical structures | 4.5 |
| Boilers and power engineering machines | 7 |
| General-purpose machines, devices and apparatus | 10 |
| Technical machinery and equipment | 14 |
| Food industry, farm and forestry machinery | 14 |
| Earth, construction and road work machinery | 18 |
| Tooling, furnishing, and fittings | 18, 20 |
| Ships and means of transport | 7, 14 |
| Motor vehicles | 20 |
| Mobile phones | 20 |
| Computer sets | 30 |
Intangibles are depreciated over a period ranging from twenty-four months (e.g. computer software and intellectual property rights) to sixty months (e.g. costs related to formation of a joint-stock company, goodwill).
Bad debts
Generally, debts due but regarded as non-collectible cannot be classified as tax deductible expenses.
Thin capitalization
Thin capitalization rules limit the deductibility of interest on loans and credits from certain related parties. Namely, interest due on loans or credits granted by a foreign related party (a sister company or a shareholder holding at least 25% of stock) are not to be recognized as a tax deductible cost when the loan to share capital ratio exceeds 3:1.
According to the CIT Act a loan shall mean any agreement in which the lender agrees to transfer to the borrower a specified amount of money, and the borrower agrees to return the same amount of money; a loan shall also mean issue of debt securities, deposit or deposit account.
Under the thin capitalization rules, the deductibility of interest on a loan granted:
- by a shareholder/shareholders holding at least 25% of the voting rights, or between subsidiaries in which the parent company holds at least 25% of the voting rights is limited to the portion of interests paid on a loan not exceeding three times the company's share capital, as determined by the date of interest payment. Any interest paid in relation to a loan which exceeds this threshold is not deductible.
Transfer prices
According to Art. 9a of the CIT Act, a corporate taxpayers must prepare documentation on transactions with associated enterprises (both between resident enterprises and between a resident and non-resident enterprise) and transactions with enterprises resident in the countries applying harmful tax practices. The documentation must contain the following information:
- the functions performed by the enterprises which are parties to the transaction, including assets used and risks assumed;
- the expected costs relating to the transaction as well as terms and forms of payment;
- the method of calculating the profit;
- the business strategy and other factors influencing the setting of prices and
- with respect to transactions involving intangible property and services, the expected benefits.
According to the definition, domestic relationships occur whenever:
- a domestic entity directly or indirectly participates in management or control over another domestic entity, or owns shares in the share capital of another domestic entity,
- the same legal entities or natural persons participate in management or control over another domestic entities, or own shares in the share capital of such domestic entities,
- family, property or employment relationships occur.
The transfer pricing reporting requirement applies to inter-company transactions the total value of which exceeds in a tax year:
- EUR 100,000 if the value does not exceed 20% of the taxpayer's share capital;
- EUR 30,000 for transactions involving intangible property and services and
- EUR 50,000 in other cases.
With respect to transactions with enterprises resident in countries applying harmful tax practices, the threshold is EUR 20 000. The list of the countries applying harmful tax practices is announced by the Minister of Finance.
The above mentioned regulations apply also to the foreign entities, acting on the territory of Republic Poland according to Art. 3 Act 2 CIT throughout the fixed establishment.
If the tax authorities or the fiscal control authorities determine income of the taxpayer in the amount higher (loss in the amount lower) than declared by the tax payer in connection with the transactions with related entities, and the taxpayer has not presented those tax authorities with tax documentation required under those provisions - the difference between income declared by the tax payer and determined by those tax authorities shall be taxed at the rate of 50 %.
Tax Capital Groups
Pursuant to the Corporate Income Tax Law, taxpayers may be groups consisting of at least two commercial companies having legal personality. The groups must be linked by capital relationships – that is, "tax capital groups." Such particular status allows the taxpayer to be a beneficiary of special favorable tax treatment. A tax capital group may only consist of limited liability companies or joint-stock companies registered in Poland. The average initial (share) capital for each of these companies must not be lower than PLN 1.000.000. The "dominant company" (parent company) should have direct shareholdings of at least 95% in the initial capital of the remaining companies, called "dependent companies" (subsidiaries). Dependent companies cannot hold shares in the initial capital of other companies that make up the group. The most important condition is the requirement of a minimum profitability ratio in the tax group (profits/total sales) on the level of 3%. An agreement to form a tax capital group for the period of at least three tax years must be prepared in the form of a notarial deed and registered by the local tax office of the parent company.
The most important advantage of being a tax capital group is a special method available to calculate taxes. The group’s taxable income is a surplus of the sum of profits of all companies over the sum of their losses. Members of the group can establish their own pricing policies without the risk of negative transfer-pricing consequences, which is a real risk for companies that are not members of a tax capital group.
Large Taxpayers
Since 1 January 2004 certain categories of taxpayers (so-called ”large taxpayers”) deal with specially appointed tax offices.
According to Art. 5 sec.9b of the Tax Offices and Chambers Act a large taxpayer is in particular:
1. tax capital groups,
2. banks,
3. insurance companies,
4. entities acting according to the provisions on public securities exchanges and investments funds,
5. entities acting on the basis of provisions on the organization and functioning on pensions funds,
6. branches or agencies of foreign enterprises,
7. legal entities or organizational units not having a legal personality, which:
a) achieved a net revenue as defined under Acting principles, last year, of at least 5 million EUR according to the average exchange rate announced by the National Bank of Poland at the end of tax year, from the sale of goods, product and services,
b) as residents under the foreign exchange regulations, they participate directly or indirectly in managing enterprises situated abroad or controlled by them, or have a share in the capital of such enterprises, or
c) are managed directly or indirectly by a non-resident has at least 5% of the votes,
d) as residents under the foreign exchange regulations they simultaneously, directly or indirectly, participate in managing a local and foreign entity within the meaning of other Acts or they control it or have simultaneously a share in the capital of such entities.
Double Taxation Avoidance Treaties
The personal income tax and corporate income tax regulations provide that the credit method is used to avoid double taxation, unless double taxation treaties specify differently. Poland has signed Double Taxation Avoidance Treaties with over 80 countries. Most of the treaties signed by Poland are based on the 1977 OECD Model Conventions. The above mentioned Convention applies to persons who are residents of one of the both Contracting States. This Convention shall apply to taxes on income and on capital imposed on behalf of a Contracting State or of its political subdivisions or local authorities, irrespective of the manner in which they are levied.
Residents have unlimited tax liability in Poland, which means that they are subject to tax on their world-wide income. Non-residents have limited tax liability to Poland, which means that they are liable to pay tax only on income from work performed in Poland, and on other Polish-source income.
Remuneration obtained by non-residents as members of boards of directors, supervisory boards or other decision-making bodies of legal entities is taxed at a fixed, flat withholding tax rate of 20%, provided that they perform their duties under an appointment to the management board and not under a contract of employment concluded with a company registered in Poland.
Special Economic Zones
There are 14 Special Economic Zones in Poland. The advantage of investments in the Special Economic Zones is that the income earned from economic activity within a zone under a granted permit is free of income tax.
TAX ON ACTS IN CIVIL LAW
Certain legal procedures, in particular contracts of sale, exchange of property rights, loan contracts, contracts of donation, establishment of mortgage, establishment of usufruct for consideration, contracts of irregular deposit, partnership deeds and company deeds or founding acts, amendments to these contracts or increase the share capital of a capital company, and a number of other contractual arrangements – are liable to taxation.
The tax liability arises upon performance of an act in civil law or upon adoption of a resolution increasing the capital of a capital company. The tax liability is borne by parties to acts in civil law and by a company – in case of increasing the share capital.
The Act of September 9, 2000 on Tax on Acts in Civil Law regulates in detail the issues of assessment of tax base, and provides with tax rates. i.e.:
- sale of goods contracts - 2%,
- sale of property rights - 1%,
- loan agreements - 2 %,
- company deed and amending of company deed – 0,5% .
Tax on acts in civil law dose not arise, if transactions are taxable wit Value Added Tax (VAT).
PROPERTY TAXES
There are three different types of this tax in Poland, applicable to property, agriculture and forestry. The distinction between these three similar taxes has an important practical aspect, as the rate of taxation for property is far higher than the tax rate for the agriculture and forestry. The Local Taxes and Fees Act determines the general distinction between agricultural and property. The levels of property tax rates are decided by the Commune Council, but they cannot, in the course of the year, exceed the maximal rates per one square meter of taxable land surface determined in the Law Act. The property tax covers lands, buildings and the parts thereof, structures used for conducting business. Agricultural tax is calculated on the basis of the “convertible hectare” units held that take into account different classes of arable land, as well as the different economic and climatic conditions. Only farms covering more than 1 hectare and with over 1 hectare of land in cultivation are subject to this tax.
IV. SYSTEM OF SOCIAL SECURITY
The system of collecting insurance premiums from working population and distributing them in the form of pensions for old people or benefits for people unable to work through the Social Insurance Institution (ZUS - Zakład Ubezpieczeń Społecznych). There are also unemployment benefits in the system which are distributed through the Labour Offices (Biuro Pracy).The system is managed by the Ministry of Labour. The Social Insurance Institution has become a new public organization. Its tasks are determined by the law of 13 October 1998 on social security system. The social security system has been substantially reformed and now consists of three pillars to which payments are made. The first one is obligatory, the second one is obligatory for some individuals and the third one is voluntary.
The scope of the Social Insurance Institution activities makes it one of the biggest public institutions in Poland. It associates functions of the finance institution (contribution collection, benefits payment, and tax collection on behalf of pensioners) with the function of the institution that brings its clients (beneficiaries and contribution payers) safety connected with reliable accomplishment of social missions commissioned to the Institution.
| Contribution type | Employer share | Employee share | Total |
| Pension Fund | 9.76 % | 9.76 % | 19.52 % |
| Disability Fund | 4.50 % | 1.50 % | 6 % |
| Illness Fund | - | 2.45 % | 2.45 % |
| Accident Fund | 0.67-3.33% | - | 0.67-3.33% |
| Employees’ Guaranteed Benefits Fund | 0.10 % | - | 0.10 % |
| Health Fund | 9 % | 9 %* | |
| Labour Fund | 2.45 % | - | 2.45 % |
* deductible to certain amount from the personal income tax.
Contributions to the pension and disability funds are computed on and deducted from the amount limited to PLN 100 770.
Effective from 27 September 2001, foreign nationals working in Poland under an employment contract or a personal services contract concluded with a Polish entity are subject to mandatory health insurance contributions. The health insurance contribution amounts to 9 % of the assessment basis for calculation of health social insurance is equal to the gross remuneration less the amount of social insurance contributions paid or withheld from the individual’s gross remuneration. The contribution to health insurance are deducted from the amount of individual’s tax liability, however, such a deduction cannot exceed 7,75 % of the assessment basis described above.
V. ACQUISITION REAL ESTATE IN POLAND BY FOREIGNERS
In accordance with Act of 24 March 1920 on the acquisition of real estate by foreigners the acquisition of real estate by foreigners form EU-Counties does not require any permission from the state authorities if the real estate is not agriculture real estate.
Foreigners from other countries still need such permission. Such permission is issued in the form of administrative decision, which is fully subject to the Code of Administrative Procedure. Following authorization of the Minister of Internal Affairs and Administration, the permission is issued by the Director of the Department of Permits and Licenses at the Ministry of the Internal Affairs and Administration, with the consent of the Minister of National Defense and in case of agriculture real estate also the Minister of Agriculture and Rural Development.
The permission is also necessary when a foreign person plans to acquire shares or stocks in a commercial partnership based in Poland which is the owner or perpetual user of the real estate if:
- as a result of the purchase or other acquisition of such shares or stocks in a commercial partnership, this business entity becomes a controlled commercial partnership or
- the commercial partnership is already a controlled commercial partnership and the shares or stocks are to be purchased or otherwise acquired by a foreigner that is not a shareholder or stockholder of the commercial partnership.
Permission from the Minister of Internal Affairs and Administration is not required, except for real estate located within a border zone for agricultural land whose area exceeds 1 ha, in following cases:
1. acquisition self-contained private accommodation in the meaning of the act dated 24 June 1994 about ownership of premises,
2. real estate is planned to be purchased by a foreigner who has resided in Poland for at least five years from the date of obtaining a permanent resident card,
3. acquisition by a foreigner who is a spouse of a Polish citizen and has resided in Poland for at least two years since obtaining a permanent residence card of a real estate which will become statutory marital property,
4. acquisition of a real estate by a foreigner who at the date of such acquisition is a statutory successor to the transferor, if the transferor of the real estate has been its owner or perpetual user for at least five years,
5. a company plans to purchase, for its statutory purposes, undeveloped real estate in urban areas whose total area in the entire in Poland does not exceed 0,4 ha,
6. the property is to be purchased by a foreigner who is a bank and at the same time a mortgagee through acquisition of ownership of a property following an unsuccessful auction in execution proceedings,
7. acquisition or assumption of shares by a bank who is a legal person in connection with vindication of the bank claim’s as a result of bank’s action.
The provisions of this Act do not apply to the acquisition of real estate through inheritance by persons entitled to statutory succession, neither do they apply to the transformation of a commercial partnership.
Permissions for purchase of real estate are granted, when an application is supported by documentation confirming that the property is indeed required for a intended investment project, unless the acquisition of this property is contrary to the national interests, and in particular if it endangers national security. If he requests so, a foreigner may obtain a promise of permission. Such a promise is issued after completing the administrative procedure, similar to that followed if an application for permission is considered, however, if a promise is issued, the permission itself is issued relatively quickly.
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